A new allocation of special drawing rights (SDRs), a reserve asset from the IMF, has been issued and are already being put to work by governments around the world eager to respond to the impact of COVID-19. But a significant portion of those SDRs are currently held by high-income countries that don’t need them, which has spurred a push to recycle them to where they’re most needed. The proposed Resilience and Sustainability Trust (RST) within the IMF could be the instrument to do that. As the IMF puts it, the new trust would support policy reforms to help build resilience and sustainability especially in low-income countries (LICs), small states, and vulnerable middle-income countries.  And, as we have stressed in an earlier note, the trust could be a key component of much broader efforts to catalyze public and private funding.  

Although many details have yet to be finalized, it seems likely that the RST would either have to itself meet the standards of a regular-IMF supported program or operate only alongside such a program. Either way, this implies that countries would need to have a macroeconomic program that, in the terminology of the IMF, meets the standard of “upper credit tranche” (UCT) conditionality to be able to borrow from the RST. And if the RST emerges with a strong signaling role in marshalling other support, this policy standard could be the de facto gatekeeper for more than the limited resources of the RST. This has already spurred heated debate about whether lending from the RST should be subject to these conditions.